Pakistan provides lucrative opportunities for foreign investment

Ideally geo-strategically located in South Asia, Pakistan is your access to the energy rich Central Asian Republics, the affluent Gulf States and the hi-tech and economically developed Far East. In addition to the available extensive rail and road network, Pakistan has developed Gwadar port and is constructing a network of highways which would link up adjoining regions to Central Asia. There are plans to link up South Asia with roads and oil and gas pipelines from Central Asia and Iran.

Some of the recent projects undertaken by Korean firms include the 350-kilometer Lahore-Islamabad Motorway and more recently the near-completion 8.5-kilometer Lavari tunnel reflect strong Korean entrepreneurial interest in business opportunities in Pakistan. KP Chemical, a subsidiary of the Korean conglomerate Lotte Group which bought Pakistan PTA last year, will also be setting up a 45 MW captive power plant on the site. It is a $500 million investment in the petrochemical sector and they are currently planning a multi-million dollar extension of the PTA plant. KP Chemical also recently entered into a strategic partnership with Kolson Foods of Pakistan in the F&B sector. Korea Water Resources Corp. (K-water) signed a $800 million clean drinking water supply project with CDA in Islamabad. A Korean consortium of K-water, Sambu and Daewoo Engineering & Construction has bought Al-Ghurayr’s shares for the $331 million, 150 MW Patrind hydropower project in Azad Kashmir. Sambu, which is constructing the Lavari tunnel in Chitral, Pakistan, got the 84 MW Newbong hydel power project also in Azad Kashmir. Sambu also entered into a deal for the 107 MW Golen Gol hydro power project as EPC contractor, while Pan Energy Development Company (PEDCO) in collaboration with Bin Daen Group of UAE got a mine lot of Thar coal. Deokjae Construction Ltd. will construct the 67-kilometer Mirpur Khas-Hyderabad Dual carriageway project. Daewoo International recently got a $20 million order for providing power transmission devices to NTDC. This year, a consortium of Hyundai Heavy Industries and Korea Southern Power Co. (KOSPO) signed a MOU with the Pakistani Board of Investment (BOI) for a 2 gigawatt wind power plant, while BOI also signed an MOU with STX for collaboration in the infrastructure and energy sectors. STX has also recently entered into an agreement with Tuwairqi Steel in Pakistan for producing hot briquetted iron. A Korean consortium has also shown interest in Integrated Bus Rapid Transport system for Punjab province, while Pakistan Railways has shown interest in purchasing used diesel locomotives from Korea.

Pakistan’s strategic location and high return add to the benefits of cheap yet trained manpower while allowing 100 percent foreign ownership and repatriation of profits. Pakistan also offers a wide network of Export Processing Zones (EPZs) and Industrial Estates and foreign investors are treated at par with local ones. The raw material import for export manufacturing is zero-rated and there is no sales tax or withholding tax on import of machinery. Customs duty on machinery import is also nominal at 0 to 5 percent. Then there are the added benefits of secure and green environment. Despite global economic recession in 2008-09, the exports from EPZs have grown consistently to $396 million in 2009-10 and export target from Pakistan’s EPZs is set at $500 million for 2010-11.

Beside the EPZs, the government is also passing a legislation to have Special Economic Zones (SEZs) with even further incentives for Investors. Such SEZs are already announced for China and Japan. There is immense potential for developing Korean industrial parks on those lines.

With a population bordering on 180 million, Pakistan offers both a lucrative consumer market as well as a trained and competent workforce. Add to that a business friendly environment, reasonably good economic indicators, huge untapped investment opportunities and a growing world class infrastructure, it is no wonder that Pakistan is one of the fastest growing emerging economies in the world today. This large, trained, mostly young and therefore productive population represents a big opportunity for Pakistan to benefit from its demographic dividends which can fuel Pakistan’s growth for the next fifty years. With our law enforcement agencies operating in some troubled areas close to our western border, peace is fast being secured in those regions as well.

The government of Pakistan offers many incentives for investment in the construction/real estate and infrastructure sector, some of which are as follows:

― Commercial banks being encouraged to advance loans for housing, by earmarking a substantial percentage of their loan portfolio

― Simplification of procedures for land transactions and standardization of mortgage documents to facilitate sale and purchase of housing

― Stamp duties and registration fees shall be adequately reduced to an aggregate total of 1 percent to enhance registration, improve documentation and increase revenue receipts.

― Import of plant and machinery and spares by the housing and construction companies, not manufactured locally, shall be exempt from custom and import duties in excess of 10 percent. This will be in accordance with government notification declaring housing and construction as priority “C” industry.

― No stamp duty/registration fee, etc. shall be charged for housing mortgage.

― Property tax on rented property shall be reduced from the current high rate of 25 percent to 5 percent.

― All new construction of houses on plots, measuring up to 150 sq. yards and flats/apartments with an area of 1000 sq. ft. have been exempted from all types of taxes for a period of 5 years.

Bilateral trade with Korea

Pakistan’s trade with Korea has grown over the years. It was $1.1805 billion in 2010 (an increase of 6.17 percent over 2009), with Pakistan’s exports to Korea at $399.661million (an increase of 4.6 percent over 2009) and Korean exports to Pakistan at $780.871 million (an increase of 7 percent over 2009). This is a long way from the $600 million we had in the early 90s. There is a lot of untapped potential waiting to unfold and we can cross $2 billion in the next few years.

Pakistan’s major exports to Korea are naphtha, unrefined copper, cotton yarn and fabric, indentured ethyl alcohol, leather and leather products, frozen fish and crustaceans, surgical instruments, copper waste, ready made garments and sports goods etc. Korean exports to Pakistan include vaccines for human medicine, synthetic staple fiber, polymers of propylene, flat rolled products of iron, synthetic coloring matter, heat exchange unit, bulldozers, polymers of ethylene, medicaments, synthetic rubber etc.

Potential value added products from Pakistan could include engineering goods, sophisticated surgical instruments, high-end manicure and pedicure products, leather products, apparel and knitwear, denim, textile made-ups, hand knotted carpets, value-added chemicals, cutlery, processed dairy products fisheries, precious and semi-precious stones, marble and granite (our golden marble “Indus gold” and green onyx have good markets in Korea) and stationery products for the Korean market.